Canadian Equipment Financing

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Securing Equipment Refinancing Loan Above $500k

How To Secure An Equipment Refinancing Loan Over $500,000 With The Equity You Hold In Your Equipment

Securing an equipment refinancing term loan for over $500,000 using equity you hold in your equipment involves several steps and considerations.  Here is a list of 7 key steps you'll need to cover off when going through this process.

  1. Valuation and Loan-to-Value Ratio: Begin by having your equipment professionally appraised to determine its current market value. Understanding the loan-to-value (LTV) ratio that lenders accept is crucial. This ratio dictates the maximum loan amount you can secure against the value of your equipment.
  2. Financial Health and Creditworthiness Assessment: Prepare detailed financial statements of your business, including balance sheets, income statements, and cash flow statements. Your personal and business credit scores will be crucial in this assessment, as they provide lenders with insight into your financial reliability and credit history.
  3. Business Plan and Loan Proposal Development: Create a comprehensive business plan and loan proposal. This should detail how you intend to use the loan, how it fits into your broader business strategy, and your plan for repayment. A well-structured plan can significantly enhance your chances of loan approval.
  4. Lender Research and Application Process: Identify potential lenders, such as banks, credit unions, and specialized online lenders. Compare their terms, rates, and reputation. Once you choose a lender, complete their loan application process, which will include submitting your business information, financial statements, and the equipment appraisal.
  5. Negotiation, Agreement, and Legal Considerations: After receiving a loan offer, review and negotiate the terms if possible. Ensure you understand all legal aspects, including any liens against your equipment. It's often beneficial to consult a legal expert to review contracts and legal implications.
  6. Insurance Requirements: Lenders may require insurance on the equipment to protect against loss or damage. Ensure you maintain the necessary insurance coverage as per the lender's requirements.
  7. Ongoing Compliance and Communication with Lender: Maintain regular communication with your lender, adhere to the loan terms, and make timely payments. Keep the lender updated on your business performance, especially if facing challenges that could impact your repayment ability.

By consolidating the steps into these seven key points, you can manage the process more efficiently while ensuring all critical aspects of securing the loan are addressed.

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Equipment Refinancing

Balloon Payments

“What Exactly Is A Lease Financing Balloon Payment?”

When you enter into an equipment lease, the lease will be structured as either an operating lease or a capital lease.

A capital lease will require you to purchase the asset at the end of the lease term for a predetermined purchase price of around $10.

With an operating lease, at least 10% of the principal amount must be outstanding at the end of the lease term.

Interest or cost of capital is paid on this amount during the lease term.

At the end of the lease, if the lessee wishes to purchase the asset, this outstanding balance plus whatever other fees or costs will need to be paid to complete the transaction.

This large payment amount at the end of an operating lease is a balloon payment.

Balloon payments are also not restricted to 10% and can be much higher depending on the asset being financed, the applicant, and lending and funding criteria of the leasing company.

A balloon payment can also be built into an equipment loan, but is more common with equipment leasing scenarios.

The main reason for getting a balloon payment arranged is for cash flow management purposes.

The more of the principal repayment of the asset that can be delayed, the better its going to be for the cash flow during the period of the lease.

Of course if the intention of the applicant is to acquire the asset at the end of the lease term, there will have to be a means by which to cover off the balloon amount to complete the transaction.

There are basically two ways to do this.

First, and most common, the business pays the balloon payment from its own cash resources.

Second, the balloon payment is refinanced into another lease or an equipment loan and repayment of this amount is now scheduled over a longer period of time.

Larger balloon payments are most common with assets that have a very long useful life.

Because the asset will depreciate much slower than the rate of the principal repayment, a structured balloon payment serves to provide the opportunity for debt repayment to occur over a longer period of time and reduce the build up of equity in the equipment which doesn’t do much for the business owner’s cash flow.

If you’d like to know more about balloon payments and what you may be able to qualify for, I suggest that you give us a call and we’ll go over your financing requirements with you and provide relevant financing options for your consideration.

 

 

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Last Updated: March 2026

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Last Updated: March 29, 2026

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